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While Twitter might be all the rage for personal electronic communications, another phenomenon is hitting a home run in the business world. Whether it’s called Electronic Invoice Presentment and Payment (EIPP), Electronic Invoicing (e-Invoicing), Supplier Electronic Payment (SEP), or yet another name, AP automation is on the rise. And one of the most intriguing features of these newer electronic AP solutions is their ability to link buyers, suppliers, banks, and other business partners in a virtual environment.
Supplier adoption has long been on the biggest barriers to the widespread use of electronic payment solutions. But as buying organizations become more aggressive in communicating the value of these applications, an increasing number of suppliers are signing on. And once they see networking features in action, the suppliers are quickly converted, as electronic advocates eager to spread the word.
By reducing the invoice-to-pay cycle time and facilitating communications among the participants, the networks are actually enhancing corporate relationships. Buyers and suppliers can negotiate early payment discounts, resolve disputed items, and even develop complementary and mutually rewarding goals. Both buyers and suppliers can appreciate an immediate ROI in the form of increased spend management visibility and improved cash flow, including the resulting reduction in costly but often- necessary financing.
Although it may not be setting the world atwitter, the new networking is indeed changing global commerce by eliminating inefficiencies and conquering cultural, geographic and linguistic barriers.
REPORT: Eight Building Blocks of Invoice Automation, Supply Chain Finance & Discount Management
AP Automation including Invoice Automation and Discount Management (IADM) initiatives need a framework to ensure that programs are approached on a strategic basis which bridges both the Supply Chain and Finance organizations. PayStream’s analysts have introduced such a framework to help enterprises implement integrated IADM and maximize benefits.
To achieve the long-term value of Invoice Automation & Discount Management (IADM), organizations need to adopt a strategy involving both Procurement and Finance and therefore initiatives should be approached at an enterprise level. So far, only a limited number of enterprises have stepped up to this challenge and are implementing what PayStream Advisors calls integrated IADM optimization. This number is steadily rising, as corporate enterprises begin to achieve benefits in their first attempts at IADM and realize what really needs to be done. Our most recent research survey that many enterprises are still implementing electronic invoicing or stand alone Discount Management or Supply Chain Finance programs, not truly integrated projects.
When companies focus on planning, as opposed to implementation, PayStream estimates that:
Nearly 30 percent of surveyed enterprises have plans that would fit the integrated IADM description.
Approximately 50 percent of those are planning a Level I approach (not integrated)
Less than 20 percent are planning an integrated approach which brings together buyer/supplier collaboration with electronic invoicing.
More than 15 percent are considering global initiatives to inject third party financing into their supply chains
Integrating Invoice Automation and Advanced Finance Tools such as Dynamic Discount Management or Supply Chain Finance is not easy. It requires a multi-disciplinary vision and leadership to drive a focus on unleashing working capital from the trade Invoice and receivables, otherwise it will remain fragmented. It involves difficult changes to processes, and external organization that can make implementation difficult. Organizational and cultural barriers exist between Supply Chain/Procurement and Finance managers making clear thinking on IADM difficult.
The technology support seems easy but it isn’t. Technology staff must grapple with the challenges of getting invoices approved faster, multichannel alignment, and systems integration. Even if the CFO accepts the need for enterprise-level IADM, the quarterly demands of procurement and working capital targets, especially in delicate economic conditions, make IADM one of the the most important challenge facing the finance organization, but not the most urgent for the CFO. This typically results in a focus on tactical quick wins until conditions are better.The main reason enterprises are not implementing integrated IADM is an inability to see the big picture and understand what is involved.
Just as a map helps you understand the context of your journey (the roads you need to navigate and alternative routes), so the PayStream IADM framework helps enterprises make decisions about the best route and objectives for their situation.
Following an analysis of several larger corporate enterprises, PayStream Advisors has created a IADM framework, or map, called “The Eight Building Blocks of Invoice Automation and Discount Management (see Figure 1) to help enterprises see the big picture, make their business cases and plan their implementation. The framework can be used for internal education and debate in developing the IADM vision and IADM strategies. It can then be the basis of an assessment of the enterprise’s current and required IADM capabilities, to help understand its current position and future strategy.
Using this framework, PayStream Advisors is currently profiling several enterprises that are great examples of IADM at work.
Core Topic
Supply Chain Financing: Optimizing Working Capital through the strategic use of financing and discounting in the supply chain
Key Issues
During the next five years, how will cash management strategies, processes and technologies evolve to enable enterprises to improve the use of working capital tied up in trade Invoice and receivables?
What is IADM, how will it evolve, and what drivers are emerging to force its adoption?
What is the senior finance executives in successful IADM initiatives?
Strategic Planning Assumptions
Through 2008, 90 percent of successful IADM initiatives will balance the needs of improved supplier relationships with working capital improvements Enterprises that have a wide differential between their and their suppliers cost of capital are twice as likely to achieve adopt IADM and Discount Management goals.PayStream’s Building Blocks research and report will be released at the September 10-12th PayStream Summit, in Orlando, FL. Those finance and supply chain managers whom desire the latest information, tools and techniques in Invoice Automation and Discount Management should reserve their delegate representation at the conference
It’s sobering to think about the demise of Bear Stearns, the collapse of several regional banks, and the plummeting stock prices of larger financial institutions. Tech-savvy companies have discovered a relatively untapped revenue source – supplier electronic payments.
PayStream’s analysts note that labor accounts for the vast majority of all invoicing costs, because of time spent manually creating and mailing invoices, answering questions, managing payment disputes, and correcting errors. Although it often goes unrecognized, another significant cost in accounts receivables is payment lag time. In large companies with high volumes, the processing cycle can last three weeks or more. Those delays are costly, both in terms of lost trade discounts and unearned interest on money that could have been invested during that time.
Today’s virtual invoice and payment solutions not only process payments, they can create electronic invoices from accounts receivable systems, present invoices online, or send invoices directly to recipients’ systems. In addition to faster invoice processing with fewer errors, these solutions also offer savings in time, postage, and paper storage; improved capture of early payment discounts; and online dispute management “ not to mention an improved bottom line. PayStream’s latest report, Supplier Electronic Payments: Understanding Business to Business payment automation solutions reveals that companies can save up to $8.00 per payment by simply by moving from check to electronic payments Download a copy of the complementary report. DOWNLOAD NOW >>
First of all, let me wish readership of PaystreamVoices a happy and prosperous 2008.
The European e-invoicing market continues to remain fragmented and small but potential market size remains significantly high. Unfortunately, not much has changed since the early 2000’s except for the increasing number of vendors entering the market place, as reported by Bruno. This is obviously a positive side of a maturing market and has led to minor improvements in the overall market share. However, the optimistic predictions of analysts continued to be missed, year after year. We are still addressing the fundamental problem of replacing paper based solutions with electronic systems. We also seems to have forgotten that our key competitor is none other than paper.
Whilst much has been spoken of supply chain finance, dynamic discounting and the second p (payment) of EIPP, none of these solutions are going to achieve traction until the fundamental problems are ironed out including the significant barriers faced in implementations. This is not to say that the best-in-class companies, as regularly reported by Aberdeen Group, are not enjoying the benefits of e-invoicing. All I am highlighting is that current deployments are a drop in the ocean, when compared to the potential market size, and significant drive from vendors, consultants and governments are needed if this market segment is to be taken seriously. Lack of profits within the service providers continues to dampen the spirit of the enthusiasm.
Niche players such as OB10 has worked tirelessly to promote e-invoicing globally whilst companies such as Ariba has entered the market as part of its product diversification strategy. The scanning and OCR providers, EDI houses and accounts payable specialists all admit that EIPP is the way forward. Many of these companies I have spoken to remain convinced that EIPP is yet to arrive. I do not think they are been ignorant. If a company does not change to satisfy changing market conditions, the survival of the company will be short lived. Their stand is simply based on customer requirements, i.e. none of their customers are asking for EIPP or e-invoicing. So something is missing from the market place. I put this simply down to lack of awareness which can only be addressed by EDUCATION EDUCATION EDUCATION.
Lately, many financial organisations have taken a vested interest in purchase-to-payment or e-invoicing document exchange. Most of the global leading banks are either offering services through partners or currently in discussion with partners to offer these services. At the same time, there are commercial lending organisations such as invoice discounters and factors taking an interest in the segment. This has also created an environment where traditional vendors for the financial sector is taking a closer look at EIPP, e.g. FundTech. Forrester has claimed this is the year for consolidation. No doubt there will be one or two major transactions, but it is more likely 2009 will be the year for consolidation.
What all of above means that the e-invoicing or EIPP market should start to make progress this year. More work is needed to encourage service providers to collaborate with each other. I would like to see much more activity at Hub Alliance and other initiatives this year. The problem with Hub Alliance is that there is no budget to drive the “alliance†forward. In addition, the members’ aspirations are limited by their own personal needs, rather than offering a “alliance†for everyone interested in e-invoicing.
Whilst I remain pessimistic about the market segment, I am hoping that I will be proven wrong this year. I see 2008 not as a year of consolidation but as a year of growth.
I would also like to see more debate taking place at edocr. Please note that you need to first register with edocr before taking part in any of the discussions. Others leveraging edocr include Ariba, Crossgate Group, Accountis, Causeway Technologies, Paystream Advisors, United Data, CashTech (part of FundTech) and ebdex. Why not join the debate today and build edocr into your market communications strategy? It’s all free! Do let me know if anyone is interested in championing special interest groups on “accounts payable automation”, “e-payments”, “supply chain finance”, “banking”, “purchasing cards“, etc.
We all need to speak more about e-invoicing if we are to give this market segement a chance. And part of that is you, as readers to engage in conversation. We need to hear your successes, your horror stories of implementations, and your aspirations for the months ahead. Start engaging today, either here or at my place.
When we started Transcepta, my co-founder Ray Parsons and I talked alot about the “name-space problem” and how much it has set back our attempts around the world to move to paperless B2B eCommerce. This problem goes something like this:
The accounting system of a buyer has a purchase order, ready to send to one of their suppliers. Unless they have pre-established EDI relationships with that supplier, they probably mail or fax the PO. Larger buyers almost always have the ability to send the PO to the supplier in electronic form (i.e. XML), but if they did, the supplier couldn’t read it. Why? You guessed it: the namespace problem. The buyer orders part number AD7823, but the supplier knows it as something else. Note that name-space problems aren’t just for part numbers; they also apply to simple fields like company name, address, PO number etc.
Now the supplier receives this PO, and types it into their system as a sales order, translating buyer information into information that they understand.
Once the good are shipped, we have all kinds of documents that are sent (advance shipping notifications, proofs of delivery, invoices, statements, credit memos); all of these are handled manually, because of the namespace problems. Note that even PO’d invoices still have the problem - because a supplier’s invoice often won’t have on it PO line item detail and other information required for the buyer to match.
The payment process completes this mess - once the invoice is approved by the buyer, the payment is made and remittance data is passed in a way that the supplier almost always has to do some manual handling.
Is there a solution? Possibly, but it is no where in sight. In the late 1990’s and early 2000’s, there were initiatives to form standards, but the bodies couldn’t even agree on a schema to describe company name/ID and address! We also had groups like RosettaNet who were trying to become universal translators for us all, but when’s the last time any of us were asked by a customer to map to a RosettaNet standard?
There is one possibility: those of us in the financial supply chain automation business could get together and create interoperabilty standard to pass transactions back and forth. Why shouldn’t a Transcepta generated invoice, that came from one of our lightweight print-driver installations, feed transactions into an American Express/Harbor Payments system? Why shouldn’t all the A/P workflow vendors like 170 Systems, BasWare, Dolphin, & ReadSoft be able to handle eInvoices from all the eInvoicing solution providers?
Just following up from Will’s excellent post here, I came across a story from ioma, which speaks briefly about the importance of senior management buy-in for successfull EIPP project execution. Anyone who ever ran a project knows that people are the key in terms of successful delivery. Buy-in at the highest level is vital. A real killer for any project is movement of key people, especially the project champion. Give any project, you can always find a champion. Move the champion and you will see the emotional drive disappearing - ever heard of the term “pet project”. One of the key problems with large long projects are promotions. Obviously you want to promote good people to retain their continuous loyalty, but by doing this you end up moving them away from the project, thereby loosing the Champion. How do you manage such conflicting human resource issues?
According to Michelle Ross of RS Electronics (USA), the time spent on preparation of a business case was vital to senior management buy-in and subsequent execution. The benefits she identified include:
Timely receipt of invoices by customers (increasing the ability to utilise discounts)
Elimination of “lost” invoices in the mail by customers
Notification that customer’s shipment is en route
Reduction of time spent opening incoming mail
Reduction in all associated mail costs for RS Electronics (paper, postage, clerical time, etc.)
Possibility of improving RS Electronics cash flow cycle
To me, the greater advantage of any of these technologies are three fold:
Ability to improve cash flow cycle, i.e. much improved working capital management
Ability to improve profits by reducing operating costs
Ability to bring operational efficiency and accountability - reduce wastage and increase value addition
There are lot more reasons than this why you ought to consider e-invoicing/EIPP solution. In some cases, the key driver may not be any of the above reasons, it may well be the most trivial. This again proves that what’s important to one person or an organisation may not necessarily be important to another.
Crawling through edocr library of EIPP documents, I found these three gems written by none other than Accountis. These should help any business think about developing a business case for senior management buy-in as well as recording initial objectives, giving an early opportunity for accountability.
As you can imagine, I get to know quite a number of start up and early stage EIPP (and related) vendors, both here and across the pond. At the same time, I have also attracted a number of potential investors and acquirers seeking startup and early stage EIPP vendors.
While you may think that only start up and early stage companies require funding, I am aware of mature companies who have been in discussions with investment community in order to seek funding for growth. In these cases, funding is generally needed for geographical expansion. It is much easier for mature companies to raise funding than startups or early stage companies. While this is the general acceptance, courting potential investors for 8 to 12 months without closing the deal quickly, do put a significant strain on the business.
Given that EIPP is a growth market, almost every company continues to make losses year after year. Yes, I accept the cash flows are beginning to improve for companies such as OB10. Without further funding, their aggressive growth cannot be sustainable simply through cash flow generated. So how do they satisfy their funding needs? It then becomes a question of debt to equity ratio. Bank debt usually supports for short to medium term working capital needs and not geared for high growth requirements. As one expects, these companies are significantly shy to mention their funding needs, as they believe that the need for additional capital will be badly reflected in the market place.
At the same time, the world continues to become a smaller place, due to daily improving communications, both in terms of speed of communications and level of collaborative tools being launched. This environment makes competitors to meet each other and collaborate easily than ever before. Good examples are Facebook and LinkedIn. Whilst the LinkedIn functionality is somewhat limited and their Groups do not offer any functional support, innovative companies are using these on-line environments to seek potential partners and investors in addition to new customers.
In one occasion, while I was safeguarding a confidential discussion I had with one of the mature (simple rule of thumb: been around for more than 5 yrs) vendors, the market knew more or less of their funding needs. How is this possible? Do companies or advisers working on behalf of these companies leak limited information intentionally to test the market reaction? Surely, an adviser will not leak such information without the consent of their client, if they are breach confidentiality, they would not have clients for long. Damaged credibility is very hard to repair.
I would love to see EIPP market segment flourish with more vendors coming in to the market place. While we have seen some acquisitions, the market is not yet ready for mass consolidation. Believe me, while we speak about supply chain finance and dynamic discounting, across the pond, we are still addressing the same old pain - how to automate paper based manual processes?
Disclaimer: While I used the name of OB10, none of the content is written with OB10 in mind, except the sentence in which OB10 was mentioned. Slightly varied version of this article could be found here.
Have you noticed that the U.S. is a nation of contradictions? This country came up with electricity, the silicon chip, the personal computer, Amazon.com, the iPod, Google, and reality TV (OK, so that’s a bad example). We have very active capital markets. We launch businesses and have active venture capital to fund them. We have entrepreneurs everywhere.
And yet when it comes to financial transactions, we are in the dark ages. Take, for example, the use of debit cards. They are just starting to be prominent in the U.S. But I’ve spent a fair amount of time in Europe, and the dominance of debit cards and “smart cards” that keep account details on the card and ensure authentication - they’re everywhere! In fact, they were everywhere 5 years ago.
For B2B transactions, well, the situation is even worse than with B2C transactions. Depending on what numbers you believe, there are something like 70% to 80% of both the invoices and checks sent using paper through the postal mail in the U.S. today. Almost all of these invoices are being generated from a computer program and being sent to another business that re-types them into another computer program, which then leads accounts payables teams through a matching and approval process. From there, paper checks are generated, which again are manually entered into the vendor’s originating accounting system. Obviously, this cycle is ugly and expensive.
Let’s contrast this with Europe: in preparing for the launch of the Euro, the banks and the Enterprise Resource Planning (ERP) system vendors got together and said “let’s agree on some sample file formats to exchange invoices and payments.” Guess what - it works. Something like 70%+ of invoices in Europe go electronic - either as data or at least by email with a PDF attachment. Also, most invoices in Europe contain payment details, so the buyer can pay an invoice with the equivalent of an ACH payment. And unlike the U.S. banks, European banks can carry remittance data with the payment, to the vendor can apply the electronic cash.
There are many firms trying to fix this problem, including the company I co-founded, Transcepta (www.transcepta.com). Part of the burden is on companies like ours to help make it easier for U.S. businesses to come into the modern age with regard to A/R and A/P processes. But it’s also important that those businesses out there, most of which are both vendors and suppliers, get behind a go-electronic initiative. It makes business sense. It saves trees. And it’s the right thing to do!
Digital Vision based in Northwich, Cheshire, United Kingdom is a system integrator who specialises in accounts payable automation. Its solutions are based on Kofax’s Ascent (DICOM), a data capture product that scans invoices and other purchase-to-pay documents. Through Optical Character Recognition (OCR) and Intelligent Character Recognition (ICR), Ascent converts data from paper to electronic data which can then be automatically fed in to an accounts payable system. As you very well know, this is not a bullet-proof solution, nevertheless it has a place in the current market until EIPP becomes the norm. Digital Vision also offers workflow and content management solutions to extend their data capture capability.Digital Vision has about 70 customers, some being UK based blue chips such as Barclays, BAe Systems, BUPA, DSGi, Countrywide, HBoS, Abbey/Grupo Santander and many SMEs. Founders Dennis Wright, and Peter and Robert Goodwin have done remarkably well to have such great names as clients on their books.
BasWare has acquired the entire share capital of Digital Vision for EUR 9.2 million, to be paid in two parts. EUR 9 million is to be paid upon completion of the acquisition. The remainder to be determined by Digital Vision’s net assets on the Interim Financial Statements on 31st August 2007 and to be paid by the beginning of October 2007. This could be interpreted as few anomalies on the balance sheet that require clarification.
It’s good to hear that BasWare intends to continue to employ the current management. This is a typical announcement at acquisition stage, for specialist companies such as Digital Vision. Organisational cultures will determine the survival of the management, plus whether the key shareholders would be keen to continue to build the business having worked so hard from inception to sale.
The acquisition strengthens BasWare’s presence in the UK market, both in terms of number of staff (about 70) and market share for data capture solutions (combining the offerings of Kofax led sales and BasWare’s own data capture solutions).
According to Hannu Vaajoensuu, Chairman of BasWare
“As a result of the acquisition, BasWare gains a leading position in the UK Enterprise Purchase to Pay market, be it in terms of the number of customers, net sales or the size of the organization. Additionally, we will gain valuable expertise on data capture and management. This improves our competitiveness in especially the financing segment and among multinational, large corporations. The expertise can be utilized within the global partner agreement we recently signed with DICOM”.
If you want repeat of this story with bit more juice, please click here.
Since my entry into EIPP space 3 years ago, I have collected a vast number of documents on EIPP and related subjects (one reason for edocr). Among these were white papers and analyst reports produced by Paystream Advisors, which I found very informative especially with respect to understanding the US market. Over the years, I have come to respect Henry Ijams and his fellow analysts over their deep understanding of the Electronic Invoice Presentment and Payment (EIPP) and Supply Chain Finance (SCF). So can you imagine how delighted I was when Mitch Baxter of Transcepta asked whether I would like a personal introduction to Henry Ijams?
My first encounter with Henry took place less than 2 months ago and it became very clear to both of us that it made sense for us to work together. Henry was very interested in my blogging activities and the result is what you now know as paystreamvoices. Blogging allows Paystream to move from traditional analysis environment to new territory, not so much in terms of extending the services offered or markets and industries covered, but giving interactivity to what they do best. This should result in extending the loyal readership Paystream already has. I am a great believer that every corporate marketing strategy must include blogging as a mandatory component. If your’s does not, talk to me. A great example is Sun Microsystems.
I must thank William Donavan for his superb introduction, most of which I do not deserve. Will and I correspond on regular basis these days. Blogging helped me to establish myself as someone who has an understanding of the EIPP and SCF, as well as an entrepreneur. It also resulted in establishment of number of partnerships in early days for ebdex, notably with Pegasus. Blogging breaks corporate barriers - make it easy to do business. Bloggers also need to understand the impact their work has on others, both at corporate level and individual level (will address this through a separate post either here or at my place).
I see my role here as bringing awareness of the European EIPP and SCF to Paystream readership. I think you will also find my style of writing is different from Paystream, less structured and more opinionated. I hope you can forgive me for being less professional, after all I am a blogger trying to become an analyst. In conclusion, I am delighted to be part of the Paystream blogging family.
